(Page 10)Information is confined to material in the possession of either or both of the Vendors. The benefit of a right under a contract is a chose in action. A chose in action is a personal right of property which can only be claimed or enforced by action as distinct from taking physical possession: Loxton v Moir (1914) 18 CLR 360, 379. Graphite's contractual right to receive the drill core samples under cl 5(b) of the sale agreement is a chose in action that was capable of being assigned but not physically possessed. The question is whether it was the objectively determined common intention of the parties to assign the contractual right to receive the drill core samples.
25 The definition of Mining Information is silent on what link is required between the information as defined and the Vendors who agreed to sell and transfer it to Blackjade. The appellant identifies the link as a requirement that the Mining Information be in the possession of either or both the Vendors at least prior to settlement. The respondents contend the definition of Mining Information should be read as confined to 'information available to the party who has to provide it' which is wide enough to include information in the possession of each Vendor or that to which each is entitled. 26 Having regard to cl 3.1 and cl 8.1(c) in particular and the nature and purpose of the assignment agreement generally, the parties must have intended that the Mining Information be something the Vendors were entitled to deal with as their own and which was capable of being transferred (assigned) at or before settlement. Clause 3.1 contemplates that the transferees be 'beneficial owners' of the Assets and cl 8.1(c) is a Vendors' warranty to the effect that they had the rights to sell and assign the Assets as at the date of settlement.
27 The benefit under cl 5(b) of the sale agreement satisfies both the requirements of ownership and assignability. However that does not answer the question in issue. Clause 3.1 does not purport to assign rights or privileges generally; the rights or privileges must be 'received or appertaining' to, relevantly, the Mining Information. I will assume for present purposes in the respondents' favour that 'appertaining' means 'relating to'. Yet it remains the case that what was to be sold and transferred was the Mining Information and any rights (or privileges) relating to that information. The definition of Mining Information covers information (knowledge) relating to the Tenements and the physical objects which are the source of, or record, the information (knowledge). The objects in the definition such as drill samples are physical objects which the Vendors are entitled to transfer at or before settlement. The
(Page 11)contractual right to receive the drill core samples is not information relating to the Tenements nor is the right a physical object. The definition of Mining Information does not encompass a contractual right to receive objects containing information relating to the Tenements. That is, it does not include Graphite's contractual right to receive the drill core samples. If the benefit under the contract is not within the definition of Mining Information, the reference to rights and privileges in cl 3.1 has no relevant operative effect. Notwithstanding the background known to all the parties, a reasonable person would not understand the language in which the parties have expressed their agreement as assigning the benefit of the sale agreement. I would uphold ground 1.
Possession of drill core samples 28 The trial judge found that at the date of Rio Tinto's notice of election to withdraw from the sale agreement it had in its possession drill core samples for all the drilling it had done on the original tenements. The thrust of the appellant's challenge is to the finding that Rio Tinto had drill core samples of all holes drilled on the original tenements. The appellant claims there was no evidence to enable the trial judge to determine, with any reasonable certainty, the number of drill core samples in the appellant's possession at the relevant time in which event Graphite had failed to prove the extent of Rio Tinto's breach making it impossible for the trial judge to assess Graphite's loss.
29 A plaintiff has the onus of establishing the fact and the amount of its loss: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. However, mere difficulty does not prevent a court from estimating damages as best it can: Commonwealth v Amman 83, 102, 125, 153.
30 The trial judge accepted the expert evidence of Mr Noakes to the effect that it was standard industry practice to retain drill core samples and as much of the sample as possible. The evidence was that the collection of sampling is the most expensive cost in kaolin exploration and that, because of the wide range of potential applications for kaolin, there is repeated testing over an extended period of time of drill core samples. The trial judge also accepted the evidence of Mr Lulofs as to the commercial importance and practice of retaining drill samples and found that it would have been unlikely for Rio Tinto to have lost or destroyed drill core material or samples from its drilling. Mr Noakes and Mr Lulofs were called by the respondents. Rio Tinto failed to call any witnesses to give evidence in relation to the subject. Its failure to do so was
(Page 12)unexplained. The trial judge had regard to this failure, as he was entitled to do: Jones v Dunkel (1958) 101 CLR 298.
31 There was evidence that Rio Tinto had sent samples or sub-samples of drilling material to Comalco Research Centre for analysis and testing. However, the trial judge found that the samples were 'taken from drill core material, leaving a remainder' (at [108]). I understand the trial judge to mean that not all the drill core sample extracted from a drill hole would be sent for testing. 32 In addition to the findings made by the trial judge, the respondents by notice of contention seek to rely on evidence of Mr Lulofs which they contend was wrongly rejected as evidence of the truth of what was said by an agent of Rio Tinto, Mr Williams. The background is as follows. The evidence of Mr Lulofs, accepted by the trial judge, was that he had communicated with Rio Tinto in relation to the delivery of drill samples. In around September 1997 Mr Fitzpatrick, Rio Tinto's superintendent of tenements, told Mr Lulofs that it was not convenient for Rio Tinto to organise the return of the drill samples at that stage and they would have to be returned later. On 22 June 1998 Mr Lulofs attended at Rio Tinto's premises at Belmont and spoke with Mr Williams concerning the matter. After Mr Williams gave Mr Lulofs three drill core samples there was the following exchange:
What did [Mr Williams] say to you?---He said Firstly, can you recall what he said?---Yes. When referring to the three drill samples that he gave me he said, 'Those samples came from these pallets and these - which also contain the other Kerrigan kaolin samples'.
Did he point to something, did he?---Yes.
What did he point to?---He pointed to the wire cages. That’s one particular wire cage and then a series of other wire cages.
I see. What was he pointing to the other series of wire cages to identify? Sorry, when he pointed to the other wire cages did he say what he was identifying?---When he pointed to the other wire cages he said, 'They are the other samples which are from the Kerrigan kaolin deposit and those are the samples that will need to be transferred to Graphite Holdings' storage'. Can I add something that he also said?
Yes?---Just in doing so, he pointed to about 20 or 30 cages and said, 'They are the Kerrigan samples'. There were also other cages in the storage shed and he pointed to those and said, 'Those samples are from other projects in the south west', other kaolin projects not related to Kerrigan, but he
(Page 13)pointed to 20 or 30 to advise the amount of samples that need to be transferred. You are referring to Kerrigan. What is Kerrigan?---Kerrigan was the project name that CRA had adopted for the two leases, E 70/1248 and E 70/1307. So that was the project name.
33 Counsel for the appellant correctly conceded that the trial judge erred in concluding that the evidence of Mr Williams' responses was not admissible as an admission against interest. 34 The evidence relied on by the trial judge both alone and together with the excluded admission against interest entitled him to draw the inference that at the relevant time Rio Tinto had in its possession drill core samples from all the drilling it had done on the original tenements. I would dismiss ground 2.
Measure of damages
35 Blackjade was awarded the cost of re-creating the drill core samples obtained by Rio Tinto from the drilling it undertook on the original tenements. The question for this court is whether Graphite is entitled to that measure of damages. At the time of Rio Tinto's breach of the sale agreement the original tenements had expired, the Tenements had issued and the Tenements had been transferred to Blackjade pursuant to the assignment agreement. Graphite held approximately 75% of the shareholding in Blackjade and was obliged to provide interest free loans to fund Blackjade's exploration activities on the Tenements.
36 Rio Tinto conceded that if Graphite had still been the holder of the original tenements at the time of Rio Tinto's breach, it would have been entitled to recover the cost of re-creating the drill core samples. However, in the events that transpired, Rio Tinto contended that the cost of re-creating the drill core samples was unreasonable (relying on the principle in Bellgrove v Eldridge (1954) 90 CLR 613) and that Graphite had suffered no loss in which event it could recover only nominal damages. To address these questions it is necessary to revert to basic principles.
37 Graphite claimed damages for loss of bargain (its expectancy loss). That is, it sought to be placed in the same position as if the sale agreement had been performed according to its terms. There are ordinarily two bases for measuring loss of bargain damages. The first is the difference in value, being the difference between the market value of what the plaintiff was entitled to receive under the contract and the contract price. The
(Page 14)second is the replacement or rectification costs (that is, the 'cost of cure'). Prima facie rules apply to different categories of contract. The prima facie rule for a contract for the sale of goods is the difference in value measure. The prima facie rule for breach of a building contract is the cost of cure. However, the quantum of damages is a question of fact and the prima facie rules can be displaced in proper circumstances. For example, the difference in value measure applies if goods or services equivalent to that contracted for are readily available in the market. If there is no market equivalent to that contracted for, the cost of acquiring a substitute may be the correct measure of damages. Further, the cost of cure measure will not apply to a breach of a building contract if the cost is unreasonable because, for example, it is disproportionate to the economic benefit: Bellgrove v Eldridge (618 - 619).
38 An issue that arises in cost of cure claims is whether, if the costs have not been incurred at the time of trial, it is reasonable to award that measure in the absence of evidence that the plaintiff intends to incur the costs by effecting the cure. Australian courts ordinarily apply the general rule that a court is not concerned with what a successful plaintiff proposes to do with its damages: Bellgrove v Eldridge (620); De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28, 35; Consort Express Lines Ltd v J-Mac Pty Ltd (No 2) (2006) 232 ALR 341 [68]. However, it is unnecessary to determine that issue in this case because the uncontradicted evidence of a common director of both respondents was that the damages would be expended on re-creating the drill work. 39 In essence, the appropriate measure of damages for breach of contract will depend on what is reasonable. That is, the selection of the appropriate measure is governed by considerations relevant to mitigation: Radford v De Froberville [1977] 1 WLR 1262, 1272 (Oliver J).
40 The decision in Bellgrove v Eldridge, relied on by the appellant for the first limb of its damages challenge, addresses the question of the appropriate measure of expectation damages. The second limb of its case is to the effect that any award of damages greater than nominal damages would be an error because Graphite had suffered no loss.
41 A plaintiff who suffers no loss as a result of a defendant's breach of contract is only entitled to nominal damages. Further, the general rule is that a plaintiff cannot recover the loss sustained by a third party. However, there are exceptions to that rule. For example, a shipper of goods is entitled to substantial damages from the shipowner for their loss even if the risk and property in the goods had passed to a third party. This
(Page 15)is known as the 'the Albazero exception': The Albazero [1977] AC 774. There is a further exception for building contracts as illustrated in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85. In Linden, a building contract between an owner and contractor provided for building work to be done by the contractor on the owner's land. The land, but not the benefit of the building contract, was later transferred by the owner to a third party who suffered financial loss as a result of the defective building work. In an action by the owner for breach of the building contract, the contractor argued that the (former) owner had suffered no loss as it was not the owner of the land when the breaches occurred. The House of Lords rejected the contractor's argument and held that the owner was entitled to substantial damages. Lord Griffiths upheld the claim on the basis that the employer had suffered a loss and the majority agreed with Lord Browne-Wilkinson who held that the third party's loss could be recovered by the owner.
42 However, this is not a case where Graphite has suffered no loss. The subject matter of the sale agreement is, relevantly, the drill core samples. At all material times before and after Rio Tinto's breach Graphite remained entitled to receive the drill core samples which have a separate physical existence and value apart from the land to which they relate or any mining tenement over that land. This conclusion is consistent with the evidence of Mr Noakes accepted by the trial judge (at [33], [168]). It is to be contrasted with the building cases where the loss relates solely to the land, the defective building being a fixture thereto. The value of the drill core samples is in the information they contain about the mineral potentiality of the land the subject of the Tenements. They have an independent value notwithstanding that the market for the information is likely to be confined to the holders or potential holders of a mining tenement over the land and perhaps adjacent land. Moreover, the fact that the information in the drill core samples would have a direct bearing on the value of any mining tenement on the land is not inconsistent with their separate status and value. In this context, it is relevant that Graphite has a substantial, albeit indirect, economic interest in the Tenements and is obliged to provide interest free loans to fund exploration activities thereon. 43 The drill core samples are analogous to goods for which there is no readily available equivalent in the market. There being no market equivalent to that contracted for by Graphite, it is prima facie reasonable to award damages equivalent to the cost of acquiring a substitute which is the effect of the order made by the trial judge. It does not cease to be reasonable simply because the value of the drill core samples is somewhat
(Page 16)speculative: Sunshine Exploration Ltd v Dolly Varden Mines Ltd (1969) 8 DLR (3d) 441. The evidence established that there are kaolin resources on the Tenements. Moreover, there is no challenge to the trial judge's finding at [161] that there was no disproportion between the cost of replicating the drilling and the value of it to Graphite. In any event, it is Rio Tinto's breach that prevents a fully informed assessment of the value of the information in the drill core samples. I am satisfied that Graphite suffered loss as a result of Rio Tinto's breach and that it was reasonable to award the cost of re-creating the drill core samples. I would dismiss ground 3.
Interest 44 The trial judge awarded interest on the damages from 5 November 1999 until judgment. He did so in the exercise of the discretion under s 32 of the Supreme Court Act 1935 (WA) (the Act). The respondents had claimed interest on damages not interest as damages.
45 In order to succeed in its challenge to the discretionary decision under s 32, Rio Tinto has to establish that the trial judge made a material error of fact or law: Australian Coal and Shale Employees' Federation v Commonwealth (1953) 94 CLR 621, 627. That matter is not without its difficulty because the trial judge did not explain why he exercised his discretion to award interest and the appellant failed to clearly identify the relevant error said to vitiate the decision. I infer from the appellant's submissions that the essence of its claim is that the decision was unreasonable in circumstances where the respondents only damages claim was for the costs to be incurred in the future to replicate the drilling which costs, according to the appellant, were assessed as at the date of trial.
46 The function of an award of statutory interest is to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period: Grincelis v House (2000) 201 CLR 321 [16]. The relevant period is that between the date when the cause of action arose and the date when judgment takes effect (s 32(1) of the Act). The High Court noted in Grincelis that there may be a further purpose of encouraging early resolution of litigation.
47 The general rule is that damages are assessed as at the date the cause of action accrued which in contract is the time of the breach: Johnson v Perez (1988) 166 CLR 351, 355, 367, 371. Thus, interest is to compensate plaintiffs for the detriment they suffer by the delay in receiving damages to which they theoretically became entitled at the time of the breach: Haines v Bendall (1991) 172 CLR 60, 66. It follows that,
(Page 17)although interest will ordinarily be awarded for out of pocket expenses, it is not confined to that.
48 The respondents contended that this case is analogous to the loss of a chattel in which event a plaintiff is entitled to interest by virtue of the detriment in not having the use of the chattel even in the absence of a claim for damages for consequential loss, relying on Metal Box Co Ltd v Currys Ltd [1988] 1 WLR 175. It was held in that case that a plaintiff who had been deprived of the value of its goods because they had been destroyed by the defendant's negligence was entitled to an award of interest on the judgment sum, being the value of the destroyed goods, notwithstanding that there was no claim for damages for any consequential loss. McNeill J said:
[T]here is no authority for the proposition that the plaintiff who has been deprived of his chattel by the defendant's tort, and who is kept out of the value of the chattel … should not be awarded interest on the judgment sum. To my mind to hold otherwise would be to confuse damages for consequential loss with interest (180).
49 However, in Metal Box the measure of damages was the market value of the chattel and the interest was awarded because the plaintiff was kept out of the money value of the chattel from the date of the breach. Indeed, the market value measure of loss is based on the assumption that it is reasonable for the plaintiff to purchase a substitute in the market.